According to new forecasts from the European Commission, Germany is headed for a prolonged recession this year, and it will be the only major European economy to register an economic downturn in 2023, CNBC reported, citing News.ro.

Economic activity in Europe’s biggest economy will fall by 0.4% this year, 0.6 percentage points lower than the estimate made in May, according to the Commission, which published new forecasts on Monday.

The institution also lowered its expectations for German growth in 2024 from 1.4% to 1.1%.

The German economy struggled after the Russian invasion of Ukraine, and Berlin had to quickly end years of energy dependence on the Kremlin.

In July, the International Monetary Fund said the German economy was likely to contract by 0.3% this year.

Leading economists called the German economic center “the sick man of Europe.”

The concept was invented in 1998 when Germany faced economic difficulties.

The term is now back as the German economy is in a deep manufacturing slump.

Data released in early September showed that manufacturing activity in the country fell at the fastest rate since June 2009, excluding the period of the Covid-19 pandemic.

Other economists, however, disagree that Germany’s current problems are comparable to previous recessions.

“The situation in Germany today is significantly different from the problems of 1995-2004. First, Germany enjoys record employment, high labor demand, and the most comfortable fiscal position of any major advanced economy. This makes it much easier to adjust to shocks,” Holger Schmieding, chief economist at Berenberg, said in an August note.

General slowdown in Europe

The latest economic forecasts point to a general slowdown in the region. According to data from the European Commission, the European Commission expects the economies of the 27 EU countries to grow by an average of 0.8% this year. This is less than 1% in May.

The picture for next year is also more unfavorable than previously forecast. The European Union is expected to record economic growth of 1.4%, up from May’s estimate of 1.7%.

“The weakness in domestic demand, especially consumption, shows that high consumer prices for most goods and services, which are still rising, are having a stronger impact than expected,” the European Commission said in a statement on Monday.

High inflation continues to be one of the main challenges of the European bloc. The latest forecasts show that consumer prices will fall in the coming months, but inflation is likely to remain above the European Central Bank’s 2% target until the end of 2024.

Headline inflation in the eurozone, where the 20 EU countries use a single currency, is estimated at 5.6% in 2023 and then at 2.9% until the end of 2024.

“Inflation in the services sector has so far been more robust than expected, but is expected to continue to moderate as demand moderates under the influence of tighter monetary policy and post-pandemic momentum fades,” the committee said.

He warned that the price pressure could last longer.

ECB officials are due to meet on Thursday and announce whether they will raise interest rates again.

The ECB raised interest rates by 4.25 percentage points from July 2022 in an effort to reduce high inflation in the region. (News.ro)